Unless you have a poor credit history, you should never pay
a standard
variable rate (SVR) of interest.
This is because virtually every mortgage
lender also offers a range of far cheaper fixed
interest and discounted
variable rate deals.
These can last for anything from a few months to your full mortgage
term, but the most popular are usually between two and five
years. At the end of this time, your lender will move you onto
its SVR.
It's up to you to decide what length of deal best
suits your needs.
Here are some things to take into account when deciding
The problem with very short deals
The cheapest fixes and the biggest discounts generally last
less than two years.
You might be attracted to these if you are very short of money,
but they are rarely a good idea.
They usually come with an extended
redemption penalty that ties you to the lender's standard
variable rate for several years after the special deal has
ended, often more than cancelling out your early savings.
The problem with very long deals
If you are looking for certainty about the level of your future
payments, you may be drawn to a long-term fix of, say, ten or
more years.
If interest rates rise over this period, it could turn out to
be a very shrewd move, but if they fall, you could end up seriously
overpaying compared to other borrowers.
So unless you have an infallible crystal ball, you
might be better to copy the bulk of borrowers who have gone
before you and opt for a medium-term deal.
The benefits of two to five-year deals
Deals of this length offer a reasonable balance between stability
and flexibility.
Opt for the shorter end of the scale, and you will face the
cost of remortgaging
to avoid paying you lender's standard
variable rate sooner.
Opt for the longer end, and you won't have to remortgage so
often, but you will be tied down for longer.
At the end of the day, it's a matter of personal
choice.
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